Other BriefingsChina’s Luxury Market Outlook: Stabilization, Strategic Reset, and the New Consumer Landscape
China’s luxury market is entering 2026 in a phase of cautious stabilization, shaped by shifting consumer demographics, evolving tastes, and a more complex macro-policy environment. Brands that recalibrate pricing, re-engage younger consumers, and expand strategically into rising cities will be best positioned to capture the next wave of sustainable growth.
China’s luxury market finally shows signes of stabilization following several years of turbulence. Major luxury houses reported improving sales in the China market, suggesting that the downturn may have reached its floor. Nonetheless, China’s long-term luxury outlook will be shaped by several structural factors, including a shrinking base of aspirational consumers, ongoing macroeconomic uncertainty, and evolving preferences that increasingly favor understated, experience-driven forms of luxury.
Globally, the personal luxury goods industry stagnated in 2025, recording flat growth at constant exchange rates amid persistent economic headwinds, but is expected to return to modest expansion of around three percent in 2026.
For international brands and investors, these trends require a recalibration of expectations and operating strategies. In this article, we provide a detailed outlook for 2026, examining global and China luxury dynamics, consumer demographic shifts, strategic pressures, and practical implications for brands and investors operating in the world’s most closely watched luxury market.
China’s luxury market over time
2023–2025: A post-boom slump
China’s luxury market has moved rapidly from exceptional growth to a clear slowdown. After tripling in size between 2017 and 2021 and accounting for an estimated 35–40 percent of global luxury spending at the post-COVID peak, momentum weakened in 2022–2023 as pandemic aftershocks, economic pressures, and shifting consumer expectations set in.
The adjustment became pronounced in 2024, when domestic luxury sales fell by 18–20 percent year-on-year, effectively reverting to 2020 levels. Softer consumer confidence (exacerbated by the property downturn) combined with renewed outbound travel and mounting resistance to relentless price increases all contributed to the contraction. The third quarter marked the low point, though slight improvement emerged in Q4 following targeted consumption stimulus.
By early 2025, most analysts expected a flat year, reflecting the market’s new volatility and muted sentiment, and cautioning that underperformance could “become the norm,” with only a handful of brands likely to outpace the market, prompting many players to focus on store consolidation and operational efficiency rather than expansion.
Q3 2025: Signs of stabilization
Late 2025 brought early indications that China’s luxury downturn may have reached its floor. Several major groups reported noticeably better results in the third quarter of 2025, suggesting that demand was starting to stabilize. LVMH posted its first quarter of sales growth in over a year, with revenues up one percent and management citing “noticeable improvement” in Asia (ex-Japan), driven largely by China. The CFO confirmed that mainland China returned to positive growth in Q3.
Burberry likewise saw its China business grow for the first time in more than a year, with comparable store sales up three percent. Management highlighted a 10 percent increase in returning customers and stronger engagement from Gen Z, supported by a renewed focus on more accessibly priced heritage products.
Richemont also reported a strong quarter: Asia-Pacific sales rose 10 percent and China returned to growth for the first time in nearly two years. Chairman Johann Rupert pointed to “early signs” of renewed Chinese demand, while cautioning that it was premature to call a full recovery.
Even Prada, which had been under pressure, noted that the “worst is over,” with declines leveling off and Golden Week sales exceeding expectations, though the company stressed that the previous decade’s boom conditions are unlikely to reappear.
Taken together, these Q3 results signaled that Chinese luxury spending was beginning to revive (selectively but meaningfully) helping brands outperform pessimistic forecasts and contributing to the broader improvement in global luxury sentiment.
Rebuilding the consumer base and consumption trends
Shrinking aspirational middle class
One of the most consequential structural shifts in China’s luxury landscape is the visible contraction of the aspirational consumer base. After a decade in which middle-class shoppers powered much of the sector’s expansion, their participation has weakened markedly. Years of aggressive price elevation (once justified by strong demand) have now collided with slower income growth, rising financial pressures, and a more cautious social climate.
Bain estimates that the global luxury customer pool has fallen from roughly 400 million in 2022 to 340 million in 2025, with a further loss of 20–30 million consumers likely before the market stabilizes. This decline is concentrated among aspirational buyers who traditionally entered the category through accessible products such as small leather goods or cosmetics but who now feel priced out or reluctant to spend.
China illustrates this shift acutely. Many are delaying purchases, trading down, or withdrawing from luxury altogether. Social attitudes have also evolved: in an environment of greater economic insecurity, conspicuous consumption by those of average means can attract criticism, reinforcing what some commentators describe as a rising sense of “luxury shame.” The result is a more polarized market structure in which a smaller, resilient elite accounts for a growing share of sales, while the once-vibrant middle-tier customer base continues to thin.
Focus on HNWIs and VICs
As the aspirational middle segment contracts, China’s luxury market is becoming increasingly reliant on high-net-worth individuals (HNWIs) and very important clients (VICs). These elite consumers have remained active (and in some cases even increased their spending during the downturn) but signs of fatigue are emerging.
Globally, top spenders now account for roughly 46–47 percent of luxury sales by value. In China, this dependence is even more pronounced: the country’s roughly 780,000 millionaires generate an estimated 42 percent of domestic luxury purchases. Brands have doubled down on this clientele through private services, exclusive product offerings, and bespoke events designed to reinforce loyalty.
However, this strategy has limits. Bain cautions that brands “cannot target only the top customers,” noting frustration among wealthy buyers who feel overcharged and underserved as prices climb without corresponding increases in value. Chinese HNWIs also have ample alternatives (real estate, art, investment products) that compete for discretionary capital, and some appear to be displaying consumption saturation.
The implication for 2026 is clear: while affluent Chinese will remain central to the industry, relying on them alone is insufficient for sustainable growth. Revitalizing engagement with the next tier of consumers is essential for rebuilding a broader and more resilient market base.
Taste evolution: Quiet luxury and authenticity
On the other hand, Chinese consumer preferences are visibly shifting from logo-centric bling toward a more understated, values-driven notion of luxury. The trend of “quiet luxury” has gained momentum, emphasizing discreet refinement, quality, and heritage over overt branding.
Among sophisticated consumers and the wealthy, the markers of status are increasingly subtle (a tailored suit, an unlogoed Bottega Veneta bag, a heritage Vacheron Constantin watch) rather than overt monograms. This evolution mirrors global currents but is heightened in China by social sensitivities: in uncertain economic times, ostentatious consumption can feel inappropriate, reinforcing a preference for discreet, high-quality products.
Younger consumers further accelerate this shift. Gen Z and millennials seek authenticity, cultural relevance, and personal identity in their purchases, often favoring brands that can articulate a meaningful narrative or demonstrate commitments to sustainability and craftsmanship.
Rise of Tier-2 markets
Another notable structural shift is the geographic redistribution of luxury demand within China. Growth is no longer concentrated in Beijing and Shanghai, markets that are increasingly saturated, but is emerging from a widening constellation of Tier-2 and rising cities.
As economic development spreads inland, cities such as Chengdu, Wuhan, Xi’an, Hangzhou, Changsha, and Zhengzhou have become meaningful luxury hubs, supported by expanding middle classes, improving urban infrastructure, and strong local commercial ecosystems.
Migration dynamics are central to this trend. Young professionals and affluent families are relocating to lower-tier cities for better quality of life and expanding job opportunities, lifting local purchasing power. At the same time, “reverse migration” from high-cost Tier-1 cities is bringing established consumption habits back to hometowns and regional centers. As Jing Daily notes, lower-tier markets “from Wuhan to Zhengzhou” are rapidly becoming luxury retail powerhouses, driven by rising incomes and demographic shifts.
Retail infrastructure has matured accordingly: complexes such as Chengdu IFS and Wuhan SKP now deliver foot traffic, brand mix, and sales levels comparable to top-tier malls, particularly during major shopping festivals. Luxury houses have responded by opening boutiques, staging large-scale brand events, and strengthening omni-channel penetration, as online luxury orders from smaller cities continue to climb.
Domestic vs. overseas spending rebalance
Last but not the least, a defining feature of China’s luxury market reset is the shifting balance between domestic and overseas spending. During 2020–2022, border closures effectively repatriated all Chinese luxury consumption, driving exceptional growth in mainland boutiques and Hainan’s duty-free sector. Once travel resumed in 2023–2024, this dynamic unwound. Chinese tourists quickly returned to shopping abroad, drawn by wider assortments and substantial price advantages.
By 2024, overseas purchases accounted for roughly 40 percent of total Chinese luxury spending, with domestic consumption making up the remaining 60 percent, yet combined spending was still about seven percent below 2023 levels. Asia-Pacific destinations benefited disproportionately: Chinese spending in APAC excluding mainland China reached about 120 percent of its 2019 level, bolstered by the weak yen and favorable pricing, while Europe recovered to roughly half of pre-pandemic levels.
Price gaps remain the core driver. In late 2024, certain luxury items were as much as 30 percent cheaper in Japan than in China, and meaningful differentials persisted across Europe. In response, brands began tightening global pricing strategies, implementing purchase limits in overseas stores, reducing regional disparities for new launches, and harmonizing price ladders. China, meanwhile, continues to invest in domestic duty-free and free-trade infrastructure, though Hainan’s offshore duty-free sales fell about 29 percent in 2024 amid revived outbound travel and competition from e-commerce beauty platforms.
China’s luxury market 2026 outlook scenarios
Given the still-fragile recovery in consumer sentiment, the most plausible outlook for 2026 is a baseline scenario of moderate stabilization. The improvements observed in late 2025 gradually firm up as policy support provides a modest lift to confidence, pent-up demand continues to filter back into the market, and pricing adjustments help re-engage consumers who had stepped away from discretionary spending.
Under these conditions, luxury sales in China could return to low-to-mid single-digit growth (around five percent) broadly in line with global expectations. This trajectory assumes a stable macro environment and no major disruptions, but reflects a growing industry view that China has passed the trough and is settling into a more sustainable, mature growth phase.
An upside scenario, though less likely, remains plausible and is widely hoped for. A stronger rebound could emerge if confidence improves more decisively, driven by bigger-than-expected stimulus (despite recent CEWC gave no signals to this), clearer progress in resolving property-sector risks, or easing geopolitical tensions. A more supportive environment could draw middle-class consumers back more quickly, partially reversing the customer attrition of recent years.
In such a case, China’s luxury market could accelerate into high single-digit or even low double-digit growth, again outperforming global trends. Renewed outbound travel, if it lifts overall spending rather than merely shifting it abroad, and brand strategies that successfully activate cultural moments or youth-driven trends, would further amplify momentum.
Strategic considerations for investors and operators
Taking all factors into account, to succeed in China’s evolving luxury market, investors and brand operators should take a strategic, adaptive approach. Key considerations include:
- Pricing reset: A first priority is reassessing pricing. After years of near-automatic increases, many luxury houses are acknowledging that the escalation cycle has reached its limits. The perception of overpricing has alienated large segments of aspirational consumers, making 2026 an opportune moment to rebuild trust. This does not imply broad discounting, but rather a more calibrated approach: stabilizing prices, introducing well-positioned entry-level items, and narrowing the gap between domestic and overseas price points.
- Re-engaging Gen Z: Re-engaging China’s Gen Z is equally vital. This generation is discerning, digitally native, and highly attuned to authenticity. They reward brands that demonstrate cultural sensitivity, creativity, and genuine purpose. Digital excellence is now a baseline expectation, but the differentiation lies in how brands use China’s platforms to tell stories that resonate, whether through localized content, collaborations with respected artists and cultural figures, or interactive formats that feel participatory rather than promotional. Sustainability and social responsibility remain strong drivers of affinity, meaning that values must be communicated clearly and credibly. Beyond marketing, this may require internal agility: faster response cycles, openness to co-creation, and organizational structures that elevate youth insight in decision-making.
- Targeted expansion beyond Tier-1 cities: Geographically, the expansion into China’s lower-tier cities continues to present significant potential, but it demands strategic nuance. Consumers in these markets are increasingly sophisticated and eager for access to luxury, yet the economics of full-scale flagship expansion can be challenging. Flexible footprints (such as temporary pop-ups, traveling exhibitions, curated boutique corners in high-end department stores) allow brands to test markets and build presence without long-term commitments. Meanwhile, localized marketing, powered by regional influencers and tailored assortments, ensures relevance in markets where cultural preferences can differ markedly from those in Beijing or Shanghai.
- ESG and compliance as strategic pillars: Environmental and social expectations are rising among both consumers and regulators. Demonstrating progress in sustainable materials, circularity initiatives, and carbon reduction can strengthen brand credibility. Social contributions (such as education, cultural programs, or rural development) align with China’s policy priorities and build goodwill. At the same time, rigorous compliance with data, advertising, and product regulations is essential to avoid reputational risk in a politically sensitive environment. ESG is no longer peripheral; it is increasingly central to long-term resilience and trust.
Conclusion
China’s luxury market currently stands at a pivotal juncture: neither the boomtown of yesterday nor a market in permanent decline, but rather an arena for strategic recalibration and cautious optimism. A return to growth is on the horizon, but it will be a very different kind of growth, powered by new consumer values and smarter business practices.
International brands and investors with a stake in China must approach the market with nuance: combining fact-based analysis of emerging trends with an advisory mindset toward strategy. This means acknowledging hard truths (slower growth, a smaller customer base, more competition) while spotting the opportunities (Tier-2 cities, experiential innovation, digital engagement).
The tone among luxury executives has shifted from exuberance to pragmatism, much like China’s luxury sector itself has shifted from an era of breakneck expansion to one of steadier maturation. Those who will thrive in 2026 are those who adjust: by putting the customer first (through fair pricing and genuine engagement), by innovating in experience and channels, and by staying agile in the face of external risks.
By the close of 2026, the Chinese luxury market is likely to appear healthier and more structurally balanced, characterized less by episodic surges and more by steady engagement, quality-driven consumption, and deeper customer loyalty. Brands that take decisive, well-informed action today will be best positioned to capture this next phase of opportunity, while those that remain anchored to outdated strategies may find themselves increasingly misaligned with a market that has clearly evolved.
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China Briefing is one of five regional Asia Briefing publications. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Haikou, Zhongshan, Shenzhen, and Hong Kong in China. Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in Vietnam, Indonesia, Singapore, India, Malaysia, Mongolia, Dubai (UAE), Japan, South Korea, Nepal, The Philippines, Sri Lanka, Thailand, Italy, Germany, Bangladesh, Australia, United States, and United Kingdom and Ireland.
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